Because financial advisors often work with clients for many years or even decades, it's not uncommon for them to encounter client couples who decide to divorce. Marital conflict between clients can create a host of ethical dilemmas for financial advisors – situations that, if mishandled, could lead to breaches of fiduciary duty or even disciplinary actions from governing bodies such as CFP Board. Recognizing the prevalence and complexity of these issues, CFP Board has released guidance on how advisors should navigate divorce and other marital conflicts in alignment with the Code of Ethics and Standards of Conflict. Given the high stakes of managing these situations, advisors benefit from understanding the ethical challenges that can arise, knowing their firm's policies and fiduciary obligations to both spouses, and proactively addressing potential conflicts of interest before they occur.
Notably, working with client couples involves ethical considerations, even when the couple's relationship is strong. For instance, an advisor may communicate more frequently with the spouse who is more financially involved, while the other partner might not attend regular meetings. Over time, this can lead to advice or financial plans that don't reflect the preferences of both partners and, in some cases, to transactions that one spouse might disagree with (which could ultimately lead not just to conflict for the couple but to liability challenges for the advisor, as well). With this in mind, engaging with both partners consistently, clarifying how accounts are structured, and maintaining strong documentation practices – including accurate and comprehensive meeting notes – can help advisors ensure they are fully meeting their fiduciary obligations.
When a client couple does announce they're planning to divorce, advisors must decide how to work ethically with one or both partners while adhering to the terms of their engagement letter, firm policies, and all relevant compliance requirements. One helpful approach is to outline the options for how the advisory relationship may proceed and to immediately review current withdrawal authorizations on all accounts under management.
If both spouses choose to continue working with the same advisor, the engagement scope should be formally redefined. This step provides clear and transparent communication to both parties about what services the advisor will and will not provide during the divorce process. Nevertheless, even if an advisor strives to remain neutral, offering advice to only one spouse – or maintaining more frequent communication with one over the other – can create a disadvantage for the other. Advisors must carefully consider whether they can truly remain impartial, particularly if they have developed a closer relationship with one spouse.
If the advisor continues working with only one spouse, the joint engagement must be formally terminated and replaced with a new agreement with the remaining client. Once the new engagement is established, confidentiality becomes even more critical, as the advisor must avoid disclosing information shared by the departing spouse during the prior joint engagement. Upholding privacy not only reinforces fiduciary duty but also demonstrates professional integrity during what's often an emotionally difficult time for clients.
Ultimately, the key point is that divorce can create upheaval not only in a couple's relationship but also in the advisor-client relationship, presenting new ethical challenges around privacy, loyalty, and scope of engagement. Establishing clear structures – from documenting actions and decisions to defining firm policies for handling marital status changes – helps advisors uphold their fiduciary duty, protect client trust, and minimize the risk of regulatory or disciplinary consequences.
